FEDERAL RESERVE BOARD X-7406 WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO Apl"il 11, 1933. THE FEDERAL RESERVE BOARD SUBJECT: Securities' Bill. Dear Sir: In its telegram of April 4, 1933, Trans. 1752, the Board quoted, for your information, identical letters addressed to the Chairmen of the Committee on Banking and Currency of the Senate and the Committee on Interstate and Foreign Commerce of the House of Representatives, respectively, with regard to S. 875 and H. B. 4314, to provide for tha furnishing of information and the supervision of traffic in investment securities in interstate commerce. There is inclosed herewith; for your further information, copy of another letter, regarding S. 875, "being addressed today to the Chairman of the Committee on Banking and Currency of the Senate. A similar letter, regarding H. R. 4314, is "being addressed to the Chairman of the Committee on Interstate and Foreign Commerce of the House of Representatives. * Very truly yours, Chester Morrill, Secretary. Inclosure. TO CHAIRMEN AHD GOVERNORS OF ALL F. R. EAHS. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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FEDERAL RESERVE BOARD X-7406
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO Apl"il 11, 1933. THE FEDERAL RESERVE BOARD
SUBJECT: S e c u r i t i e s ' B i l l .
Dear S i r :
In i t s telegram of Apri l 4 , 1933, Trans. 1752, the Board
quoted, f o r your informat ion, i d e n t i c a l l e t t e r s addressed to the
Chairmen of the Committee on Banking and Currency of the Senate
and the Committee on I n t e r s t a t e and Foreign Commerce of the
House of Representa t ives , r e spec t i ve ly , with regard to S. 875
and H. B. 4314, to provide f o r tha fu rn i sh ing of information and
the supervis ion of t r a f f i c i n investment s e c u r i t i e s i n i n t e r s t a t e
commerce.
There i s inc losed herewith; f o r your f u r t h e r informat ion ,
copy of another l e t t e r , regarding S. 875, "being addressed today to
the Chairman of the Committee on Banking and Currency of the
Senate. A s imi la r l e t t e r , regarding H. R. 4314, i s "being addressed
to the Chairman of the Committee on I n t e r s t a t e and Foreign Commerce
of the House of Representa t ives . *
Very t r u l y yours,
Chester Mor r i l l , Secre tary .
Inc losure .
TO CHAIRMEN AHD GOVERNORS OF ALL F. R. EAHS. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
X-7406-
Apri l 11, 1933.
Honorable Duncan U. F le t che r , Chairman, Committee on Banking and Currency, United S ta tes Senate, Washington, D. C.
liy dear Chairman:
Reference i s made to the request contained in the l e t t e r
of April 4, 1933, from the ac t ing Clerk of your Committee f o r a r e -
por t of the Federal Reserve Board on the b i l l , S* 875, to provide f o r
the fu rn i sh ing of information and the supervision of t r a f f i c in i n -
vestment s e c u r i t i e s in i n t e r s t a t e commerce.
On Apr i l 3, 1933, the Board had occasion to wr i te to you
making c e r t a i n suggestions with regard to the poss ib le app l i ca t ion of
the provis ions of t h i s b i l l to bankers ' acceptances and short- t ime
commercial pape r . As s t a t ed in that l e t t e r , i t appears t ha t the b i l l
i s intended to apply to t r a f f i c in s tocks, bonds, debentures.and other
s imi la r s e c u r i t i e s of the kinds commonly known as investment s e c u r i t i e
which are i ssued f o r the purpose of obtaining cap i t a l funds and which
are purchased as investments, and tha t i t i s not intended to apply to
bankers ' acceptances or to short- t ime commercial paper issued f o r the
purpose of obta in ing funds f o r current t r ansac t ions i n commerce, i n -
dustry or a g r i c u l t u r e which are purchased by banks, insurance conrpanie
and o thers as a placement f o r short- term funds . By subsect ion (a) of
Section 2 (page 1, l i ne 7) , however, the term "secur i ty" as used
throughout the b i l l i s def ined as including any "note" or "evidence
of indebtedness" as wel l as any s tock, bond, debenture, e t c . , so tha t
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X-7406~a y|
Honorable Duncan U. F le tcher -2~
the d e f i n i t i o n appears to "be broad enough to include such bankers '
acceptances and commercial paper .
In i t s l e t t e r the Board suggested tha t the b i l l should be
amended by adding a t the end of l ine 9 on page 2 a proviso exempting
bankers1 acceptances and notes , d r a f t s and b i l l s of exchange growing
out of current commercial, a g r i c u l t u r a l or i n d u s t r i a l t r ansac t ions
or the proceeds of which have been or are to be used f o r cur rent com-
mercia l , a g r i c u l t u r a l or i n d u s t r i a l purposes, when such paper has
m a t u r i t i e s not in excess of nine months. However, there are other
s imi la r c l a s se s of paper, such as paper issued to f inance the breeding
of l ive s tock, which may be sold on the open market with m a t u r i t i e s
exceeding nine months; and i t would seem des i rab le in the circumstances
tha t the Federal Trade Commission be given s u f f i c i e n t d i s c r e t i o n to
enable i t to apply the provis ions of the b i l l in harmony with i t s true
in ten t and meaning. A form of subs t i t u t e amendment f o r t h i s purpose
i s submitted herewith f o r the considera t ion of your Committee,
I t appears , f u r t h e r , tha t the provis ions of the b i l l are
mani fes t ly not intended to be appl icable to Federal reserve notes , Fed-
e r a l reserve bank notes, and Federal reserve "bank stock; but the d e f i n i -
t ion of " secu r i ty" contained in subsection (a) of Section 2 (page 1,
l i ne 7) , r e f e r r e d to above, appears to be broad enough to include such
notes and stock*
I t i s noted tha t the National bank notes and National bank
stock are exempted from c e r t a i n of the provis ions of the b i l l by a
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X-7406-a 1
Honorable Duncan U. F le tcher - 3
provis ion contained in the present subsection (b) of Section 11 (page
20, l i n e s 18 and. 19); and the provis ion fol lowing immediately t h e r e -
a f t e r (page 20, l i n e s 19 to 22) apparent ly was intended to exempt
ob l iga t ions of i n s t i t u t i o n s such as Federal reserve banks. This
subsect ion, however, contains a proviso requ i r ing a l l organizat ions
mentioned the re in to comply with the provis ions of Section 8 of the
b i l l , which provides among other things (page 18, l i n e s 13 to 15)
tha t a statement containing de t a i l ed information regarding any
secur i ty sold s h a l l be de l ivered to each purchaser toge ther with
the secur i ty to which i t r e l a t e s* Such a provis ion appears to be
unnecessary with respect to Federal reserve banks in view of ex i s t i ng
provis ions of law r e l a t i n g to these i n s t i t u t i o n s and the f a c t tha t
Federal reserve bank stock i s not o f f e r ed f o r publ ic subsc r ip t ion .
In order to make the provis ions of the b i l l inappl icable to
Federal Reserve Banks i t i s suggested tha t Section 11 (page 20) be
amended by adding a new subsection a t the end t he reo f , A form of
amendment f o r t h i s purpose i s submitted herewith for the considera-
t ion of your Committee,
Very -truly yours,
(Signed) Chester Mor r i l l
Chester Mor r i l l , Secre ta ry .
Inc losure ,
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1 5 6
X-7406-a
PROPOSED MESIimTS TO S. 875
on page 2, l i ne 9, change the per iod to a colon and i n s e r t the fol lowing:
"Provided, hoy/ever. That the terra 1 s e c u r i t y ' s h a l l not
include any note , d r a f t , "bill of exchange or "bankers' accep t -
ance which a r i s e s out of a commercial* a g r i c u l t u r a l or i n d u s t r i a l
t r ansac t i on or the proceeds of which have been or are to be used
f o r commercial, a g r i c u l t u r a l or i n d u s t r i a l purposes, and which
has a matur i ty a t the time of issuance not exceeding nine months,
exclusive of days of grace; And provided f u r t h e r . That, i t "being
the i n t e n t and purpose of t h i s Act to regula te t r a f f i c i n investment
s e c u r i t i e s , as d i s t ingu ished from short- t ime ob l iga t ions issued for
the purpose of obta ining funds f o r current commercial, a g r i c u l t u r a l
or i n d u s t r i a l purposes and v/hich are purchased by banks, insurance
companies and o thers as a placement f o r shor t - term funds , the
Commission in i t s d i s c r e t i o n may by regula t ion or ru l ing f u r t h e r
determine and def ine from time to time the kinds and m a t u r i t i e s
of s e c u r i t i e s which are not included within the said i n t e n t and
purpo se«
Inse r t the fol lowing add i t iona l subsection a t the end of Sect ion 11:
" ( f ) Any secu r i t y issued by or represent ing an i n t e r e s t
in or a d i r e c t ob l iga t ion of any Federal reserve bank,"
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